“If you worry about financial Armageddon, it is indeed metaphorically the time to stock your bunker with guns, ammunition, canned food and gold bars.” – Said Economist Nouriel Roubini
Mad Hedge Technology Letter
January 27, 2025
Fiat Lux
Featured Trade:
(DEEPSEEK PUTS A SCARE INTO TECH STOCKS)
(CHINA), (NVDA)
The narrative that China is a decade behind in cutting-edge technology compared to Silicon Valley is total B.S. at this point.
It couldn’t be further from the truth.
First, it was the smartphone where Apple built an insurmountable lead for the Chinese.
Second, it was the EV and no Chinese company would ever surpass Tesla.
China is now leading in both EVs and smartphones at this point.
This narrative has been debunked and today is the final nail in the coffin.
Now…enter the wrath of artificial intelligence where reports indicate China has produced that aha moment in which China has managed to output the same quality of AI without Nvidia supercomputers and without a $100 million data centers.
Imagine the sigh of relief from American households that won’t have to deliver an electricity wealth transfer to Silicon Valley.
If this holds true, the Chinese have played the CEO of ChatGPT Sam Altman like a fiddle.
It’s extremely worrisome that Altman has irked Elon Musk so badly that it is widely known that Altman is Musk’s arch-enemy.
For everyone who doesn’t know, the app is called DeepSeek and it is now #1 in the Appstore.
Chinese artificial intelligence startup DeepSeek’s latest AI model sparked a multi-trillion rout in US and European technology stocks.
DeepSeek is a visible challenge to costlier models like OpenAI and raising suspicious if Sam Altman is just taking Silicon Valley on a ride for his gargantuan bank account.
Nvidia tanked 17% by mid-day and clearly would be one of the companies hurt by the Chinese.
DeepSeek shows that it is possible to develop powerful AI models that cost less and can potentially derail the investment case for the entire AI supply chain, which is driven by high spending from a small handful of hyperscalers.
The AI model from DeepSeek — founded by quant fund chief Liang Wenfeng — is widely seen as better than ChatGPT and will no doubt be a better value.
The DeepSeek product is deeply problematic for the thesis that the significant capital expenditure and operating expenses that Silicon Valley has incurred are the most appropriate way to approach the AI trend.
The DeepSeek release raises new doubts, challenging the notion that China’s AI technology is a decade behind US counterparts. Washington’s trade restrictions had kept the most cutting-edge chips out of China’s hands, but DeepSeek’s model was built using open-source technology that is easy to access.
The biggest and most important takeaway from this chaos is that Nvidia is now canceled as the best buy and holds long-term tech stock.
The newfound competition instills pricing issues for Nvidia and raises questions about the very model they support.
Many asset classes have become overly expensive and the narrow reason for the pricing to stay higher is the lack of competition.
So what now?
Although I don’t expect Nvidia’s stock to experience a straight move lower, this puts a hard ceiling on any meaningful stock appreciation for the rest of 2025.
This new development also puts hard ceilings on other AI chip stocks looking to benefit from those higher premiums.
Then the question of what is the next big thing to come from Silicon Valley is again thrust to the fore.
Innovation has been behind in California and Altman is looking less credible by the day.
Mad Hedge Technology Letter
January 24, 2025
Fiat Lux
Featured Trade:
(HUMANOIDS TO THE RESCUE OR NOT)
(TSLA)
Dr. Doom Nouriel Roubini needs to lay off the fear porn – I’m not taking the bait this time. Sorry Roubs!
Roubini is sounding the alarm bells on humanoid robots, but I think it is more of a case of fear-mongering than anything else.
After all, like most economists, Roubini isn’t a trader, he is an academic who sits behind the scenes and goes after those juicy sound bites that the media need to publish stories.
He wasn’t taking profits in great tech trades like when I captured profits on Netflix just the other day.
His idea goes like this…
He thinks the big breakthrough right now is the evolution of humanoid robots that essentially follow individual workers on the factory floor, on a construction site, even a chef in a restaurant, or a housekeeper. It's terrifying, but it's happening in the next literally year or two.
For this level of transformation in one year, I believe the percentage chance of this coming to fruition is less than 2%.
My understanding of the humanoids is that the software will take 10 years to figure out the nuances.
Roubini — known as Dr. Doom for his bleak economic forecasts — said human jobs would be lost to humanoids.
Instead, an LLM (large language mode) learns about everything in the world, the entire internet follows your job, my job or anybody else's job in a few months, then learns everything that a construction worker, factory worker, or any other service worker can do, and then can replace them. And I think that it's going to be a revolution — it's going to affect blue-collar jobs like we've never, ever seen before.
The humanoid robot market could reach $7 trillion by 2050, Citi research recently found. Those robots — such as Tesla's (TSLA) Optimus — may be able to do everything from cleaning your home to folding your laundry. The robots could create job loss as routine tasks get automated.
There is a higher likelihood that this humanoid from Tesla will be used as staging to convince investors to buy more tech stocks.
Tech companies have a huge problem on their hands and there hasn’t been a lot of great brain activity to find a real solution.
Venture capitalists have been lamenting the lack of real innovation in tech products like Mark Andreessen and Peter Thiel.
The humanoid is here to get investors to buy more tech stocks in companies that aren’t innovating.
Tech companies are cutting staff to beat earnings and that isn’t a sign for top-notch growth.
Investors need to separate the fluff from reality.
The reality is that big tech companies still make enormous amounts of profit but have failed miserably in finding something new.
Apple CEO Tim Cook is still figuring out what next to do after selling the iPhone to Chinese people.
The humanoid operating on AI software might give tech stocks an extra 6-month cushion before investors pull the rug.
Enjoy the bull market while it lasts. I executed a bullish trade in Dell which is part of the AI story.
AI stocks will go higher and humanoid stocks will too – not because they will make money, but because investors still buy the hype.
Mad Hedge Technology Letter
January 22, 2025
Fiat Lux
Featured Trade:
(A.I. BUBBLE CONTINUES TO INFLATE)
(ORCL). (ARM), (NVDA)
Expect a half a trillion dollar investment into data centers.
This should propel AI stocks higher and the new administration understands the last leg the tech market is standing on is the AI bubble.
It is debatable to say if these tech stocks are in a bubble, but they aren’t cheap and today’s announcement puts fuel in the fire forcing stock prices to go nowhere but up.
OpenAI says that it will team up with Japanese conglomerate SoftBank and with Oracle to build multiple data centers for AI in the U.S.
The joint venture, called the Stargate Project, will begin with a large data center project in Texas and eventually expand to other states. The companies expect to commit $100 billion to Stargate initially and pour up to $500 billion into the venture over the next four years.
SoftBank chief Masayoshi Son, OpenAI CEO Sam Altman, and Oracle co-founder Larry Ellison were in attendance.
Microsoft is also involved in Stargate as a tech partner. So are Arm and Nvidia.
The data centers could house chips designed by OpenAI someday. The company is said to be aggressively building out a team of chip designers and engineers, and working with semiconductor firms Broadcom and TSMC to create an AI chip for running models that could arrive as soon as 2026.
Abilene, Texas will be Stargate’s first site, and OpenAI says that Stargate, by 2029, could scale up to 20 data center installations.
Microsoft, which recently announced it is on track to spend $80 billion on AI data centers showing it’s an industry-wide trend.
It’s clear to everyone and also investors that propping up the AI tech world is a must because the drop in shares would be devastating to not only the retail holders but also to corporate America.
Much of the recent inflation has been paid by stock appreciation and history has shown that the current US president highlights accelerating stock prices as a barometer of US economic health.
The interesting part of this is building a slew of data centers doesn’t translate into revenue one-to-one.
The jury is still out there whether there will be a revenue windfall out of it.
At the very minimum, we know that data centers will make the price of electricity higher for everyone because they guzzle energy non-stop.
The revenue accrued will need to be higher than the cost of electricity or this is just another massive transfer from retail consumers to the corporate tech world.
Ironically, Elon Musk tweeted that the money isn’t available right now leading the investor to believe this is more about keeping the AI bubble alive than anything else.
Rumor has it that Musk doesn’t really like OpenAI CEO Sam Altman who took OpenAI from non-profit to for-profit and harvesting a multi-billion dollar payday.
Until now, kicking potential revenue creation can down the road is the order of the day, and as long as investors can buy this idea that AI data centers will mean higher revenue opportunities, then shareholders will still pile into this bubble until they don’t.
That is why stocks like Nvidia, Oracle, and ARM are seeing double digit gains in just one day.
Buy these three companies on the dip until the AI bubble pops.
“Great companies are built on great products.” – Said CEO of Twitter Elon Musk
Mad Hedge Technology Letter
January 17, 2025
Fiat Lux
Featured Trade:
(GOOD NEWS FOR META HOLDERS)
(META)
Investors should rejoice after hearing the great news from Meta (META) management.
This year has started off with a bang.
The stock price will be the outsized winner of the new staffing policy.
Meta Founder Mark Zuckerberg is targeting Meta's low performers. In an internal memo announcing staff cuts, the CEO told employees to prepare for an "intense year."
Zuckerberg is bringing the heat by announcing a fresh round of cuts aimed at managing low performers.
All those H1-B foreign workers making half a salary are probably on the cutting board unable to justify a half salary.
Meta has been widely known to aggressively add from the H1-B transfer portal to snap up Indian workers for a fraction of the cost of an American national.
Along with the H1-B workers, there will be a 100% removal of the fact-checking division.
Zuckerberg announced that he would do away with “fact-checking” all together and luckily, he will not need that entire division to tell me what the Menlo Park, California truth is anymore.
The company reportedly plans to exit roughly 5% of the lowest performers. Meta said it plans to backfill the roles with existing staff members.
Meta said U.S. employees impacted by the cuts would be notified by February 10.
Zuckerberg has also announced that he is trashing the DEI (diversity, equity, and inclusion) hiring trend which is surprising since it diametrically opposes what Meta has stood for in the past.
It is arguable that Meta has never stood for anything, but it pays to play on the right team when they are in charge of the government and the ultimate control of how businesses operate.
It's the latest round of cuts in Zuckerberg's self-proclaimed efficiency drive.
In 2023, the CEO declared a "year of efficiency" at Meta, announcing plans to eliminate 10,000 positions and flatten the company's structure to remove some layers of middle management.
In 2022, the company laid off another 11,000 employees, or roughly 13% of its workforce.
Zuckerberg’s $1 million donation to Former President Donald Trump post-election is ironic given that Meta’s Zuckerberg banned the former President from his platform.
Trump was also banned on Twitter when the platform was led by Jack Dorsey.
Without getting too political, what does this all mean?
It will result in higher profits in the short-term and remember that labor is the costliest line item.
Zuckerberg is forging his own cut expenses at all costs strategy to appease shareholders.
I have lamented the lack of profit drivers available for big tech and projects like Meta’s VR goggles have been a total failure.
When I was at the store and tried on the VR goggles myself, my head got dizzy and my eyes started to burn.
It is hard to believe that the product was allowed to go into the public without more quality control or testing.
Zuckerberg will rest his case on ultimate “efficiency” this year and I can easily see over half of Meta’s staff jettisoned in 2025.
It’s not a good time to search for a job in Silicon Valley, because there are more firings than ever before.
It’s also not the greatest time to live in the state of California, and this to me is Zuckerberg’s initial steps to leave the state with his money, influence, company, and technology just like many before him.
He might just keep his enormous Lake Tahoe lake house for a vacation or 2.
Buy dips in Meta stock before earnings and harvest what the state of California has to offer.
